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The Cabinet Office preliminary data showed gross domestic product advancing 0.3 percent from the prior three months, equating to the 1.1 percent annualized pace that reflected Japan economy up 1.1% in Q2 2026. This represented a deceleration from the 1.8 percent annualized expansion in the first quarter. External demand added 0.5 percentage points to the total while domestic demand subtracted 0.2 percentage points, according to the release.
According to the Cabinet Office breakdown, private consumption stalled after a 0.3 percent gain in the first quarter and missed forecasts for a 0.5 percent increase amid persistent cost pressures on households. Capital expenditure contracted 1.2 percent following a 1.0 percent decline previously, signaling weaker business confidence and uncertainty over the outlook. Exports rose 0.5 percent while imports dropped 1.5 percent, reversing the prior quarter’s trend and bolstering the net trade contribution.
Trading Economics reported that the second-quarter performance fell short of market expectations for 0.5 percent quarterly growth, with economists cautioning that momentum may ease further in the third quarter due to geopolitical tensions and price pressures. The Japan Center for Economic Research had projected 1.67 percent annualized growth for the period in a recent survey of forecasters. The International Monetary Fund forecasts full-year 2026 expansion at 0.7 percent.
A Deloitte Insights assessment found the unemployment rate held at 2.5 percent in June, lower than the 2.7 percent first-quarter average, while nonfarm employment rose 0.5 percent year on year. Headline inflation eased to 1.7 percent year-on-year in June, with most core measures at 1.6 percent or below, according to the review. Real wages increased 1.6 percent in May from a year earlier after earlier declines, supporting household purchasing power.
Goldman Sachs Research anticipates 0.8 percent growth for the full year of 2026, driven by domestic demand including solid consumption and capital investment despite external headwinds from trade policies. The firm expects spring wage negotiations to yield continued growth in the low-3 percent range. Bank of Japan policy is projected to reach 1 percent by July with additional rate hikes, the outlook stated.
The OECD Economic Outlook projects real GDP growth easing to 0.6 percent in 2026 overall, supported by robust wage gains and energy subsidies that aid private consumption. Public investment has stayed negative while government consumption advanced modestly. These figures align with the moderate recovery described in the Cabinet Office monthly economic reports.
